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Aetna Misses Q3 Earnings; but Revs Up - Analyst Blog

Aetna Inc.
(
AET
) reported third-quarter 2013 earnings of $1.50 per share, down 3
cents per share from the Zacks Consensus Estimate of $1.53 per
share. Earnings were also down 3.2% year over year.

Including one-time items net income came in at $1.38 per share,
down 6% year over year.

Aetna's total revenue for the reported quarter grew 46% year over
year to $13.0 billion, led by strong performance in Commercial
and Medicaid businesses. Reported revenue was slightly higher
than the Zacks Consensus Estimate of $12.9 billion.

Higher health care costs drove operating expenses up 40.5% year
over year to $2.3 billion. Operating expense ratio was 17.3%
compared with 18.3% in the prior-year quarter.

Pre-tax operating margin was 7.9% for the reported quarter, down
230 basis points year over year.

Segmental Performance

Inclusion of Coventry revenue as well as growth in Medicare
membership drove 49% year over year revenue growth in Aetna's
Health Care
segment which recorded revenues of $12.3 billion.

Total medical membership was 22.152 million as of Sep 30, 2013.
This signifies a yearly increase of 3.97 million members.

Operating earnings increased by 10.2% year over year to $585.8
million, due to earnings accretion from Coventry, partially
offset by lower underwriting margins in its Medicare business.

Aetna's
Group Insurance
revenues climbed 9% year over year to $577.7 million. The
segment's operating earnings decreased by 33% year over year to
$19.7 million reflecting lower underwriting margin in Life
business, due to the acquisition of Coventry partially offset by
lower underwriting margins primarily in Medicare business.

At
Large Case Pensions
, revenues slipped 8.5% year over year to $113.7 million.
Operating earnings increased by 68% year over year to $6.2
million.

Share Repurchase Update

In the reported quarter, Aetna spent $333 million to buyback 5.2
million shares.

Our Take

Though Aetna missed the earnings expectations, overall results
painted a favorable picture of the company's operating
profitability. Revenues were up, as also number of members served
by the company. However, medical cost rose more than the
increase in revenue which adversely affected bottom line results.

Aetna currently retains a Zacks Rank #2 (Buy). Other players
Centene Corp.
(
CNC
), and
MagellanHealth Services Inc.
(
MGLN
) with Zacks Rank #2 (Buy) reported third quarter earnings ahead
of the Zacks Consensus Estimates, while
CIGNA Corp.
(
CI
) also with similar rank is due to release its third quarter
earnings on Oct 31st.

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